December 14, 2012 / 12:02 PM / 6 years ago

Italy's debt tops 2 trillion euros in new headache for Monti

ROME (Reuters) - Italy’s public debt rose above 2 trillion euros for the first time in October, underscoring the fragility of public finances despite austerity policies imposed by technocrat Prime Minister Mario Monti.

Debt rose to 2.015 trillion euros (1.63 trillion pounds) from 1.995 trillion in September, the Bank of Italy said on Friday, continuing the steady upwards trend seen through most of this year.

The increase in the debt above the symbolic 2 trillion euro threshold will be unwelcome news to Prime Minister Mario Monti as he considers running as a candidate in a national election expected in February.

His predecessor Silvio Berlusconi has attacked the former European commissioner over the economy and the centre-left Democratic Party (PD), expected to win the election, also says the austerity pursued by Monti and other countries is not working.

“We want to reduce the debt but these austerity policies are not the right path because debt is rising everywhere,” the PD’s economic spokesman Stefano Fassina told Reuters.

With the economy in steep recession for the last year and a half, the debt is also rising fast as a proportion of gross domestic product.

The debt-GDP ratio, at an estimated 126.4 percent this year, is second only to Greece’s in the euro zone and up from the level of 120.1 percent in 2011, which Monti inherited from Berlusconi.


Calming financial markets and getting debt on a downward path were the two main tasks facing Monti when he replaced a discredited Berlusconi as Italian bond yields surged at the height of the euro zone debt crisis.

His decisive austerity measures and authoritative manner have helped lower borrowing costs, but the debt shows no sign of diminishing.

The Organisation for Economic Co-operation and Development forecast last month that would continue rising to 132.2 percent of GDP in 2014.

Tax hikes imposed by Monti when he took office last year have deepened the recession and the budget deficit has fallen much less than targeted as a proportion of output.

The government has shunned calls by some economists to try to slash the debt through large scale sales of public companies and real estate.

Economy Minister Vittorio Grilli says it would be unwise for the country to further cut its stake in its most valuable but strategically important companies such as utility Enel, oil company ENI and defence group Finmeccanica.

He has also underlined the many practical difficulties of trying to sell real estate into a depressed market, and says that a target of asset sales worth one percent of output per year is the most that can be realistically achieved.

Most analysts agree that the only reliable way for Italy to put its debt on a sustainable footing is to boost growth in what has been the European Union’s most sluggish economy for more than a decade.

Italy’s debt fell to 103 percent of GDP at the end of 2007 from 122 percent in 1994 as Italy benefited from a steep fall in interest rates due to monetary union, but the debt resumed an upward trend in the wake of the global financial crisis of 2008.

Reporting by Gavin Jones; Editing by Toby Chopra

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